Flat rate to APR

IN the days before Margaret Thatcher came to power, we used 'flat rate' to work out interest payable, then came APR. How do you convert flat rate into APR? FM, London.

Brian Capon at the British Bankers association says: The APR has been around since the 1980s. The flat rate calculation used the simple interest principle, basing the interest on the whole amount initially lent for the whole of the period of the loan.

It didn't take any additional fees into consideration. The APR is the annual percentage rate of charge set out in the Consumer Credit (total charge for credit) Regulations 1980.

As well as interest, it includes all fees that are due in respect of the loan. This enables a comparison to be made between the cost of a loan over different periods and by different providers.

Linda Whitney adds: Given the fact that rate does not include additional fees, it is not possible to convert one to the other, as they are two different things.

Consumer Credit Act regulations require interest rates in all advertisements and quotes for loans to be expressed as an APR and the flat rate basis is no longer used. The formula for calculating the APR is included within the Consumer Credit Act Regulations which can be obtained from HM Stationery Office.